Seller Financing in a Dermatology Practice Purchase
Seller financing in a dermatology practice purchase means the selling physician agrees to receive part of the price over time instead of all at closing. The buyer signs a promissory note to the seller, and payments are made from the practice’s cash flow after the sale.
It can help bridge the gap between the purchase price, the buyer’s equity and what a senior lender will finance. It also signals that the seller has confidence in the practice’s future. But a seller note adds another layer of debt and must work alongside lender and program rules. Rules vary by lender and transaction, and nothing here is legal, tax or accounting advice.
How Seller Financing Works
In a typical structure, a bank or other lender provides the main acquisition loan, the buyer contributes equity and the seller carries a note for a portion of the price. The note sets out the amount, interest, payment schedule, maturity and what happens if payments are missed.
Seller notes are typically subordinate to the senior lender. That means the senior loan is paid first, and the seller may have limited rights if the practice runs into trouble. Lenders usually require the seller to sign a subordination or standby agreement.
Why Buyers and Sellers Use It
- Bridging a gap: a note may cover part of the difference between the price and other funding sources
- Shared confidence: a seller who carries a note has a stake in a successful transition
- Negotiating flexibility: payment terms can sometimes help the parties agree on price
- Transition support: a seller who is still owed money may be more engaged in introducing patients and staff
- Tax timing: sellers may receive proceeds over time, which they should discuss with their accountant
Seller financing in a dermatology practice purchase can be especially relevant when the seller is retiring and wants an orderly handoff. Our guide to buying a retiring dermatologist’s practice covers that kind of transition.
How Seller Notes Fit With SBA Loans
SBA 7(a) loans may allow a seller note as part of the overall structure. Program rules can affect whether a seller note may count toward the buyer’s equity, whether payments must be on standby for a period and how the note must be documented. These rules can change, so buyers should confirm current requirements with their lender.
Eligibility and terms depend on the business, the buyer, use of proceeds, program rules and lender review. Every loan is subject to approval, and nothing here is a commitment to lend. Our article on dermatology practice acquisition loans explains how the senior loan is typically structured.
Seller Financing and the Down Payment
Some buyers hope a seller note can reduce how much cash they need at closing. Whether that is possible depends on the lender and program. Our article on down payment requirements for buying a dermatology practice explains how equity contributions are generally evaluated.
Key Terms to Negotiate
- Note amount and interest rate
- Payment schedule, including any interest-only or standby period
- Maturity date and whether there is a balloon payment
- Prepayment rights without penalty
- Default provisions and cure periods
- Security interest, which is usually subordinate to the senior lender
- Any right of offset if the buyer discovers undisclosed liabilities
Healthcare counsel should draft or review the note and related agreements.
Earnouts Are Different
An earnout ties part of the price to future performance, such as collections or patient volume after closing. Earnouts can be difficult to measure and may create disputes. Lenders and programs may limit or prohibit earnouts, so buyers and sellers should raise the idea early and get guidance from their lender and counsel.
Risks for the Buyer
- Additional debt service on top of the senior loan
- A balloon payment that may require refinancing later
- Possible conflict with the seller if the transition is difficult
- Lender restrictions on paying the seller if the practice falls behind
Risks for the Seller
- Payment depends on the buyer’s success after the sale
- Subordination limits the seller’s remedies
- Proceeds are received over time rather than at closing
Raising Seller Financing in Negotiations
Timing matters. Buyers often find it useful to raise a seller note early, ideally before a letter of intent is signed, so the seller can consider it alongside price and transition terms. Introducing it late can feel like a renegotiation and may slow the deal.
It also helps to explain why a note benefits both sides. A seller who understands the senior lender’s requirements, the subordination terms and the buyer’s plan for the practice may be more comfortable carrying part of the price. Involving the lender early can confirm what structure is workable before either party commits.
Due Diligence Still Matters
A seller note does not replace careful review. Buyers should still analyze financial statements, payer mix, provider dependence, equipment condition and lease terms. Licenses, payer contracts and Medicare and Medicaid enrollments should not be assumed to transfer. Our dermatology practice due diligence checklist can help organize that work.
Final Thoughts
Seller financing in a dermatology practice purchase can help align the buyer and seller and make a deal work financially, but it has to fit lender and program rules and be documented carefully. Understanding subordination, standby requirements and the risks for both sides can help buyers and sellers decide whether a seller note belongs in their structure.
US Medical Funding helps dermatologists structure and finance practice acquisitions, including deals that involve seller notes. Learn more about our dermatology practice acquisition financing and our full range of dermatology practice financing options.
